5 May 2024

Geoeconomics Bi-Weekly: Attacks on merchant shipping expand deep into Indian Ocean

Chris Borges, Kirti Gupta, and Andrea Leonard Palazzi

Among China’s myriad of economic issues is a slump in consumer spending. Chinese consumers already tend to save more than the global average, which was heightened when the COVID-19 pandemic and a real estate crisis knocked Chinese consumer confidence to an all-time low. To reverse this trend, China has gotten creative. On Wednesday the people of China celebrated Labor Day, but instead of only getting the usual one day off, the government created a 5-day weekend to boost travel and spending (to offset this, it turned Sunday April 28 and Saturday May 11 into working days). We’ll know the results of this experiment over the coming weeks, but, in the meantime, economic news out of China was slow given the long holiday. In one notable development, China’s purchasing managers index showed an expansion in the manufacturing sector for a second straight month in April, albeit at a slower rate than in March.

In the United States, the Federal Reserve held interest rates steady on Wednesday, as inflation stagnates above the central bank’s 2% target. The personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge, registered an annual price increase of 2.7% in March, up from 2.5% in February, while core PCE, which strips out the more volatile food and energy prices, remained level at 2.8%. First quarter GDP, meanwhile, came in at 1.6%, a notable drop from the 3.4% growth in the last quarter of 2023 and well below analyst expectations of 2.5%. An underwhelming growth figure would typically boost hopes that the Fed will lower interest rates, but continued inflationary pressures complicated that outlook. Fed Chair Jerome Powell indicated that rates may remain high for longer than expected given the stubborn inflation.

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